Amazon’s revenues rose …

… while profit fell

Plenty of people are upset at Amazon these days, but it took a small publishing company whose best-known volume is a toilet-training tome to give the mighty Internet store the boot.

The Educational Development Corp., saying it was fed up with Amazon’s scorched-earth tactics, announced at the end of February that it would remove all its titles from the retailer’s virtual shelves. That eliminated at a stroke $1.5 million in annual sales, a move that could be a significant hit to the 46-year-old EDC’s bottom line.

“Amazon is squeezing everyone out of business,” said Randall White, 70, EDC’s chief executive. “I don’t like that. They’re a predator. We’re better off without them.”

Nothing speaks to the escalating tensions more plainly than a parody Amazon logo circulated among publishers. A pair of yellow horns adorns the top of Amazon’s name, and its trademark smile, moved to the end of the “z,” rather than underneath, looks like a devil’s tail.

It is an unequal contest: EDC has 77 employees, no-frill offices on an industrial strip in Tulsa, Okla., $26 million in annual revenue and a stock-market valuation of $18 million — hardly a threat to Amazon, a Wall Street darling worth $86 billion.

But White’s bold move to take his 1,800 children’s books away from the greatest retailing success of the Internet era is more evidence of the extraordinary tumult within the publishing world over one simple question: Who gets to decide how much a book costs?

The Justice Department this month sued five major publishers and Apple on price-fixing charges, simultaneously settling with three of the businesses. The publishers say they were not illegally colluding but simply taking advantage of a new device platform — Apple’s iPad — to sell their e-books in a different way, where they controlled the prices.

The publishers wanted to stop Amazon from using what one of them called “the wretched $9.99 price point,” according to court papers. Selling e-books so cheaply, they feared, would solidify Amazon’s robust grip on the business while simultaneously building a low-price mindset among consumers that could prove ruinous to other bookstores and the publishers themselves.

Discounting to the bone

EDC does not produce e-books but saw exactly this happening with its physical inventory. Amazon was buying EDC’s books from a distributor and discounting them to the bone, just as it does with everything it sells. This might have been a boon for readers, but it was creating trouble with other retailers who carry the company’s titles, as well as with EDC’s network of independent sales agents, who market its books from their homes.

“They were becoming showrooms for Amazon,” White said. “We were shooting ourselves in the foot.”

Amazon is generally reluctant to explain its business practices and declined to comment for this article. But its executives say it is shaking up an antiquated business model by eliminating middlemen and passing the savings on to consumers. Publishers that try to cling to the past, they have said, will die.

The retailer’s growing list of critics, however, argue that Amazon has $48 billion in revenue but hardly any profit, proof that its approach is opportunistic and unsustainable. When traditional publishers, booksellers and wholesalers are destroyed, these opponents say, Amazon will be left with a monopoly that will be detrimental to the larger health of the culture.

Stores as showrooms

In recent months, the dispute over Amazon’s strategy of selling books below cost has boiled over from several directions.

During the holiday season, Amazon encouraged customers to use physical stores as showrooms before ordering more cheaply online, a move that infuriated bookstores in particular. Publishers and distributors say that Amazon, never exactly shy in negotiating terms, has been more assertive in its quest for ever-better deals.

To some, Amazon’s hardball tactics are reminiscent of its much-publicized pricing row two years ago with Macmillan, one of the nation’s largest publishers.

In early 2010, Amazon removed the “buy” buttons from Macmillan’s titles after the publisher sought to take pricing control of e-books away from the retailer. Amazon soon relented, saying it had no other choice but to cede control because Macmillan “has a monopoly over their own titles.”

Resistance punished

This February, Amazon again asserted its influence when it demanded better margins from the Independent Publishers Group, a Chicago distributor of dozens of small imprints. IPG balked, so Amazon removed nearly 5,000 of the company’s e-books from its site.

“Amazon wants the price of books to be very, very low — lower than the publishing community can support,” said Curt Matthews, IPG’s chief executive. “Making a book is still a craft industry. Books need to be edited, to be publicized. Someone needs to say this is good and this is not. If there is not enough money to support that whole chain, the system will break down.”

“Last year was the best in our 37 years, mainly due to the way Amazon was pushing the books,” said Bryce Milligan of Wings Press in San Antonio, an IPG client. “Then Amazon cut us off because they couldn’t get a better deal. Now our e-books sales are down 50 percent.”

Publishers’ vulnerability

Publishers have often been ambivalent about Amazon. On the one hand, it offers an extraordinarily efficient method of distributing their wares. Readers anywhere can easily order the most obscure volume and have it delivered the next day. With e-books, access is even easier, but publishers’ vulnerability is compounded; Amazon controls not just the method of distribution but the actual device the text is consumed on.

Back at EDC, somewhat to White’s surprise, the company is doing better without Amazon, at least for the moment. (Some of its books are still available on Amazon from third-party sellers.) Sales in March rose, in part because of new accounts like a toy store in Round Rock, Texas, that placed an initial order for 61 books. And colleagues in the business have been congratulating the publisher, or at least expressing their admiration for White’s guts.

“I tell them, ‘You never had the chance to make 7,000 women happy in one day,’ ” he said.